Safe Harbor Before we proceed with our presentation, we would like to point out that the following discussion will contain forward-looking statements from industry consultants, QUALCOMM, and others regarding industry trends, anticipated future results, potential market size, market shares, and other factors which inherently involve risks and uncertainties, including the rate of development, deployment and commercial acceptance of CDMA-based networks and technology and fluctuations in the demand for CDMA-based products, services or applications. These and other risks and uncertainties relating to QUALCOMM s business are outlined in detail in our most recent 10-Q and 10-K forms filed with the Securities and Exchange Commission. Please consult those documents for a more complete understanding of these risks and uncertainties. This presentation includes a discussion of "non-gaap financial measures" as that term is defined in Regulation G. The most directly comparable GAAP financial measures and information reconciling these non-gaap financial measures to the company's financial results prepared in accordance with GAAP have been included at the end of this presentation.
Q4 FY06 Segment Highlights QCT Fifth consecutive quarter of record MSM chips shipments 56M Introduced QSC1100 single-chip CDMA2000 solution for emerging markets worldwide Strategic agreement with Semiconductor Manufacturing International Corporation (SMIC) in Tianjin, China IC manufacturing services to QUALCOMM with a focus on power management ICs Acquisition of Qualphone Inc., a leading provider of IP-based Multimedia Subsystems (IMS) embedded client software solutions for mobile devices and interoperability testing (IOT) services QTL 135+ major wireless equipment manufacturers are now licensed by QUALCOMM 120+ for CDMA2000, 70+ for WCDMA/TD-SCDMA, 2 for OFDMA single mode products Licensee information for the Q3FY06 as reported by licensees in the Q4FY06: Worldwide shipments of approximately 70M CDMA2000 and WCDMA subscriber units Average selling price of ~$223 We estimate that WCDMA royalties contributed approximately 49% of total royalties reported
Q4 FY06 Segment Highlights Continued QWI QIS: availability of Ice handset from O2 using uione, the first device in Europe QWBS: shipped ~11,400 satellite-based systems (OmniTRACS, OmniVision, EutelTRACS and TruckMAIL ) and ~11,100 terrestrial-based systems (OmniExpress, GlobalTRACS and T2 Untethered TrailerTRACS ) QUALCOMM Strategic Initiatives (QSI) MediaFLO USA Continues to make significant progress in the build out of its nationwide network Working closely with Verizon Wireless, the company s launch partner, towards the launch of its nationwide network, in Calendar Q107, as Verizon Wireless has publicly stated Federal Communications Commission (FCC) released a ruling that expands the number of markets in which MediaFLO USA can operate prior to the DTV transition date in 2009
Q406 Guidance Comparison Earnings Guidance Q4 Results July 19, 2006 3G MSM phone chips - CDMA2000 1X, 1xEV-DO, WCDMA 53-56M est. 56M CDMA2000/WCDMA handsets shipped 67-70M est. (Jun'06*) 70M (Jun'06*) CDMA2000/WCDMA handset ASP $215 est. (Jun'06*) $223 (Jun'06*) QUALCOMM Pro Forma** Revenues $1.88B - $1.98B est. $2.00B EPS $0.39 - $0.41 est. $0.42 Total QUALCOMM GAAP Revenues $1.88B - $1.98B est. $2.00B GAAP EPS $0.33 - $0.35 est. $0.36 Includes QSI EPS ($0.01) est. $0.00 Includes share-based compensation EPS ($0.05) est. ($0.05) Tax adjustments related to prior years n/a ($0.01) *Royalties are recognized when reported, one quarter following shipment. **Pro forma results exclude the QSI segment, estimated share-based compensation, certain tax adjustments related to prior years and in process R&D expense.
Fiscal Quarter Results as of (Billions) $2.50 $2.00 $1.50 $1.00 $0.50 $1.56 Pro Forma Revenues YOY $1.95 $2.00 28% YOY inc. $0.50 $0.25 $0.32 Pro Forma EPS YOY $0.42 $0.42 31% YOY inc. $0.00 Q405 Q306 Q406 $0.00 Q405 Q306 Q406 (Millions) 60 MSMs YOY 55 56 (Millions) 80 CDMA/WCDMA Handsets Shipped* 70 66 40 20 40 40% YOY inc. 60 40 20 48 46% YOY inc. 0 0 Q405 Q306 Q406 *Royalties are recognized when reported, one quarter following shipment. Jun'05 Mar'06 Jun'06
Fiscal Year Results as of (Billions) $10 $5 $5.67 33% inc. $7.53 $2.00 $1.50 $1.00 $1.16 41% inc. $1.64 $0.50 $0 $0.00 FY05 FY06 FY05 FY06 Pro Forma Rev Pro Forma EPS (Millions) 225 150 151 37% inc. 207 (Millions) 300 250 200 150 182 40% inc. 255 75 100 50 0 0 FY05 FY06 FY05 FY06 3G MSM phone chips CDMA/WCDMA handsets shipped* (Sep-Jun qtrs) *Royalties are recognized when reported, one quarter following shipment.
Worldwide CDMA and WCDMA Phone Shipments (Calendar Year, Millions) Guidance 368-388Me 378Me* 290-298Me 294Me* 25-32% inc. 210M 170M 67 74-76e* 52 40 52 70 40 48 38 43 66 2007e* December September June March 2004 2005 2006 2007 *Guidance as of
Fiscal Quarter Guidance as of * (Billions) Pro Forma Revenues Pro Forma EPS $2.50 $2.00 $1.50 $1.00 $1.74 ~14-19% inc. $1.98-$2.08e* $0.50 $0.25 $0.39 ~8-13% inc. $0.42-0.44e* $0.50 $0.00 Q106 Q107e* $0.00 Q106 Q107e* (Millions) 80 MSMs (Millions) 80 CDMA/WCDMA Handsets Shipped** 74-76e* 60 40 47 ~17-23% inc. 55-58e* 60 40 52 ~42-46% inc. 20 20 0 0 Q106 Q107e* **Royalties are recognized when reported, one quarter following shipment. Sep'05 Sep'06e*
Fiscal Year Guidance as of * (Billions) $10 $7.53 $8.1-$8.6e* $2.00 $1.50 $1.64 $1.76-$1.81e* $5 $1.00 $0.50 $0 $0.00 FY06 FY07e* FY06 FY07e* Pro Forma Rev Pro Forma EPS *Note: FY07 estimates do not reflect the potential adverse impact on our results, approximately $0.04 to $0.06 diluted earnings per share, of Nokia not paying royalties in Q4 FY07 for June quarter shipments.
CDMA and WCDMA (UMTS) Handset Shipments Calendar Year (Millions), Guidance as of WCDMA Total CDMA Total WCDMA Europe WCDMA Asia WCDMA ROW (Includes North America) CDMA US/Canada CDMA Americas CDMA China CDMA India CDMA Korea, Japan, SEA, ROW 290-298M est. 294M est. 210M (1) 39 170M 27 6* (1) 11 22 10 1* 88 +2 117M 31 70 80 22 52 17 +2 23 21 12 10 25 10 11 +2 8 9 14 31 35 35 44 53 368-388M 378M est. 175 203 2003 actual 2004 actual 2005 actual 2006 midpoint 2007 midpoint WCDMA 4M 22M 50M 98M est. 175M est. CDMA 113M 148M 160M 196M est. 203M est. Total 117M 170M 210M 294M est. 378M est. Note: Regional handset shipment estimates are QUALCOMM midpoint estimates and include data devices, telematics, security devices and some quantity of channel inventory. *WCDMA ROW includes North America Change from prior guidance
Quarterly CDMA/WCDMA Handset Shipments and ASP Trend FY02 FY03 FY04 FY05 FY06 FY07 Jun'02 Sep'02 Dec'02 Mar'03 Jun'03 Sep'03 Dec'03 Mar'04 Jun'04 Sep'04 Dec'04 Mar'05 Jun'05 Sep'05 Dec'05 Mar'06 Jun'06 Sep'06 Handset shipments 19 23 27 26 23 31 37 38 40 40 52 43 48 52 67 66 70 74-76e* Calendar year 87 117 170 210 Fiscal year 78 99 146 182 255 Handset ASP $202 $190 $197 $190 $193 $194 $188 $225 $212 $212 $207 $231 $213 $215 $208 $213 $223 $209e* Fiscal year ASP $194 $192 $205 $215 $215 $205e* Quarterly CDMA/WCDMA handset shipments (Millions of units) Quarterly Average Selling Price (ASP) Fiscal Year Average Selling Price (ASP) Note: Shipments from September to June quarters are reported by licensees in December to September, QUALCOMM s Fiscal Year. *Guidance as of
Quarterly CDMA and WCDMA Handset Shipments and ASP Trend (Millions) 80 70 $231 67M 66M 70M 74M-76Me* $240 $230 60 50 40 30 52M $207 43M 48M $213 52M $215 $208 $213 $223 $209e* $220 $210 $200 20 10 $190 0 Dec'04 Mar'05 Jun'05 Sep'05 Dec'05 Mar'06 Jun'06 Sep'06 $180 Quarterly CDMA/WCDMA Handset Shipments Quarterly ASP Note: Shipments from September to June quarters are reported by licensees in December to September, QUALCOMM s Fiscal Year. *Guidance as of
CDMA ASPs are Lower than GSM in India 3,000 2,500 2,000 1,500 1,000 500 0 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Device Volume (000s) *Average of observed monthly ASP delta $120 $100 $80 ASP (USD/Unit) India GSM and CDMA Shipments and ASPs GSM Devices CDMA Devices GSM ASP CDMA ASP Source: Yankee Group, August 2006 $60 $40 $20 $0
CDMA and WCDMA QUALCOMM MSM Shipments YOY (Calendar Year, Millions) 215-218Me* 160M 145M 34-36% inc. 55-58e* 39 47 56 39 40 55 35 36 32 37 49 December September June March 2004 2005 2006 *Guidance as of
Operators Leveraging EV-DO Rev A (DOrA) Capabilities Multi-year time-to-market advantage over other physical layers with similar applications QChat killer application for Rev A < 1sec latency Push to Anything (PTX) Multi-cast Priority QoS EV-DO Rev A ~70% of total in Q406 Announced plans to launch Rev A: Launching December Already launched! Q2'06 Q3'06 Q4'06 Other Rev A equivalent channels QCT Shipments
8 EV-DO Rev. A Devices Available as of November 2006, With 3 Already Being Sold at Retail Locations Sierra Wireless 595 Novatel Wireless Merlin S720 Pantech PX500
WCDMA Growth Highlights WCDMA Device Launches with QUALCOMM Chips Per Quarter WCDMA Handset ASP 60 40 20 WCDMA $412 10% dec. $372 8% dec. $342 0 Q4'05 Q4'06 Jun'05 Sep'05 Dec'05 Worldwide WCDMA Handset Shipments 98Me* 175Me* Percentage of 3 rd party Reported Royalties From WCDMA Products 49% 41% 22M 50M CY04 CY05 CY06e CY07e *As of Q4'05 Q4'06
WCDMA and GSM % of Quarterly Handset Shipments in W. Europe 100% 75% 50% 25% 0% 2004-2005: WCDMA Grew 144% GSM Declined 8% 59% GSM 41% WCDMA Dec'03 Mar'04 Jun'04 Sep'04 Dec'04 Mar'05 Jun'05 Sep'05 Dec'05 Mar'06 Jun'06 WCDMA GSM GSM Source: Yankee Group; WCDMA Source: QUALCOMM estimate
Over 66 HSDPA Devices From 19 Suppliers Launched as of October 2006* First HSDPA Data Card ZTE MF330 1 st MSM6280 Sierra Wireless AirCard 860 Huawei E220 USB Modem Novatel Merlin U740c Option Wireless Globe Trotter Novatel Wireless Merlin U730 First HSDPA for Europe Samsung Z560 Samsung SGH- ZV50 LG KH1000 Samsung SPH- W2100 LG CU500 First HSDPA in US First HSDPA embedded Notebook Dell Latitude D820 *Sample list Source: 3GToday; GSAcom.com, October 6, 2006 LGE CU320 HEDGE Cingular Samsung ZX20 HEDGE1.8 Cingular
Balance Sheet ($Billions) Sep 2005 Sep 2006 Cash & Marketable Securities $8.7 $9.9 Receivables, Inventory $0.7 $1.0 Fixed Assets & Goodwill $1.6 $2.7 Deferred Tax Assets & Other $1.5 $1.6 Total Assets $12.5 $15.2 Total Liabilities $1.4 $1.8 Stockholder Equity $11.1 $13.4 Total Liabilities & Stockholder Equity $12.5 $15.2 Strength & flexibility to support strong growth and shareholder returns
Returning Capital to Shareholders Through Share Repurchase (Billions) $1.50B* $1.00B $0.15 $0.16B Quarterly Cash Dividend per Common Share Based on Date Payable FY2003 FY2005 FY2006 $0.12 $0.10 $0.07 $0.09 $0.05 $0.025 $0.035 $0.05 $0.00 Mar'03 Jun'03 Sep'03 Dec'03 Mar'04 Jun'04 Sep'04 Jan'05 Mar'05 Jun'05 Sep'05 Jan'06 Mar'06 Jun'06 Sep'06 Jan'07** Note: The Company affected a two-for-one stock split in August 2004. All references to per share data have been adjusted to reflect the stock split. *Gross repurchases. Authorized $2.5B on November 7, 2005, no expiration date. As of, $0.9B remains authorized for repurchase. **As of Oct 5, 2006
QUALCOMM Business Model Continues to Generate Strong Cash Flow Total QUALCOMM (GAAP) Operating Cash Flow (Millions) Pro Forma Free Cash Flow (Millions) $3,253 $3,180 $2,686 +21% $2,240 +42% FY05 FY06 FY05 FY06
QUALCOMM s Unique Patent Position Patent Portfolio is a Strong Asset Value Cumulative U.S. Patents (Issued Patents & Filed Applications) (Excludes non-u.s. filed applications and granted patents) Sep 06 Cum. Foreign Patents ~25.8K 6 ~7.4K Granted Granted and Applied 6,000 5,000 ~5.1K 4,000 3,000 2,000 1,000 0 Sep'05 Dec'05 Mar'06 Jun'06 Sep'06 Issued Total (Issued & Applied)
Reconciliations.
Reconciliation of Pro forma to Total QUALCOMM Operating Expenses (defined as SG&A and R&D) ($ in millions) Q4 Fiscal Q1-2007 FY2006 Guidance* QUALCOMM Pro Forma $ 575 Increase 5-8% sequentially (est.) (1) QSI $ 38 not provided In-process R&D $ 1 n/a Total QUALCOMM excluding share-based compensation under SFAS 123R $ 614 Increase 6-9% sequentially (est.) Share-based compensation allocated to SG&A & R&D $ 118 Total QUALCOMM (GAAP) $ 732 Increase 6-9% sequentially (est.) (2) (1) QUALCOMM Pro Forma guidance for Q1 FY07 excludes expenses related to the QSI segment and estimated share-based compensation. (2) Q1'07 total QUALCOMM (GAAP) operating expense guidance includes an estimate of the share-based compensation expense and estimated allocation to SG&A and R&D related to the Company's adoption of SFAS 123R during the first quarter of fiscal 2006. *Guidance as of
Reconciliation of Pro forma to Total QUALCOMM Operating Expenses (defined as SG&A and R&D) ($ in millions) Fiscal 2006 Fiscal 2007 Results Guidance* QUALCOMM Pro Forma $ 2,044 Increase approximately 16% sequentially (est.) (1) QSI $ 134 not provided In-process R&D $ 22 n/a Total QUALCOMM excluding share-based compensation under SFAS 123R $ 2,200 Increase approximately 17% sequentially (est.) Share-based compensation allocated to SG&A & R&D $ 454 Total QUALCOMM (GAAP) $ 2,654 Increase approximately 16% sequentially (est.) (2) (1) QUALCOMM pro forma guidance for fiscal 2007 excludes expenses related to the QSI segment and estimated share-based compensation. (2) Fiscal 2007 total QUALCOMM (GAAP) operating expense guidance includes an estimate of the share-based compensation expense and estimated allocation to SG&A and R&D related to the Company's adoption of SFAS 123R during the first quarter of fiscal 2006. *Guidance as of
TOTAL QUALCOMM (GAAP) OPERATING CASH FLOW RECONCILIATION OF PRO FORMA FREE CASH FLOW TO ($ in millions) Twelve Months Ended September 24, 2006 Estimated Total QUALCOMM Share-Based QUALCOMM Pro Forma Compensation QSI (GAAP) Net cash provided (used) by operating activities $ 3,746 $ (403) $ (90) $ 3,253 Capital expenditures (566) - (119) (685) Free cash flow (Net cash provided by operating activities less capital expenditures) $ 3,180 $ (403) $ (209) $ 2,568 Twelve Months Ended September 25, 2005 Total QUALCOMM QUALCOMM Pro Forma QSI (GAAP) Net cash provided (used) by operating activities $ 2,722 $ (36) $ 2,686 Capital expenditures (482) (94) $ (576) Free cash flow (Net cash provided by operating activities less capital expenditures) $ 2,240 $ (130) $ 2,110
Business Outlook Summary (as of ) FIRST FISCAL QUARTER QUALCOMM Pro Forma Q1'06 Results Current Guidance Q1'07 Estimates Revenues $1.74B $1.98B - $2.08B Year-over-year change increase 14% - 19% Diluted earnings per share (EPS) $0.39 $0.42 - $0.44 Year-over-year change increase 8% - 13% Total QUALCOMM (GAAP) Revenues $1.74B $1.98B - $2.08B Year-over-year change increase 14% - 19% Diluted earnings per share (EPS) $0.36 $0.35 - $0.37 Year-over-year change decrease 3% - increase 3% Diluted EPS attributable to QSI ($0.01) ($0.02) Diluted EPS attributable to estimated share-based compensation ($0.05) ($0.05) Diluted EPS attributable to tax items related to prior years $0.03 n/a Metrics MSM Shipments approx. 47M approx. 55M - 58M CDMA/WCDMA handset units shipped approx. 52M* approx. 74M - 76M* CDMA/WCDMA handset unit wholesale average selling price approx. $215* approx. $209* *Shipments in Sept. quarter, reported in Dec. quarter
Business Outlook Summary (as of ) FISCAL YEAR QUALCOMM Pro Forma Current Guidance FY 2006 FY 2007 Results Estimates (1) Revenues $7.53B $8.1B - $8.6B Year-over-year change increase 8% - 14% Diluted earnings per share (EPS) $1.64 $1.76 - $1.81 Year-over-year change increase 7% - 10% Total QUALCOMM (GAAP) Revenues $7.53B $8.1B - $8.6B Year-over-year change increase 8% - 14% Diluted earnings per share (EPS) $1.44 $1.45 - $1.50 Year-over-year change increase 1% - 4% Diluted EPS attributable to in-process R&D ($0.01) n/a Diluted EPS attributable to QSI ($0.02) ($0.11) Diluted EPS attributable to estimated share-based compensation ($0.19) ($0.20) Diluted EPS attributable to tax items related to prior years $0.02 n/a Metrics Fiscal year* CDMA/WCDMA handset unit wholesale average selling price approx. $215 approx. $205 *Shipments in Sept. to June quarters, reported in Dec. to Sept. quarters (1) Current FY 2007 estimates do not reflect the potential adverse impact on our results, approximately $0.04 to $0.06 diluted earnings per share, of Nokia not paying royalties in the fourth quarter of fiscal 2007 for June quarter shipments. Further details are included in the introductory paragraph which precedes this Business Outlook table. Sums may not equal totals due to rounding.
Pro Forma Reconciliations Fourth Quarter - Fiscal Year 2006 Segments QUALCOMM Pro Forma Estimated Share- Based Compensation (1) Tax Items (2) In-Process R&D (3) QSI (4) Total QUALCOMM (GAAP) Revenues $ 1,999 $ - $ - $ - $ - $ 1,999 Change from prior year 28% - - - - 28% EBT $ 961 $ (127) $ - $ (1) $ (23) $ 810 Change from prior year 18% N/M N/M N/M N/M 3% Net income (loss) $ 705 $ (76) $ (16) $ (1) $ 2 $ 614 Change from prior year 30% N/M N/M N/M N/M 14% Diluted EPS $ 0.42 $ (0.05) $ (0.01) $ - $ - $ 0.36 Change from prior year 31% N/M N/M N/M N/M 13% Diluted shares used 1,693 1,693 1,693 1,693 1,693 1,693 Third Quarter - Fiscal Year 2006 Segments QUALCOMM Pro Forma Estimated Share- Based Compensation (1) QSI (4) Total QUALCOMM (GAAP) Revenues $ 1,951 $ - $ - $ 1,951 EBT 976 (126) (26) 824 Net income (loss) 726 (83) - 643 Diluted EPS $ 0.42 $ (0.05) $ - $ 0.37 Diluted shares used 1,728 1,728 1,728 1,728 Fourth Quarter - Fiscal Year 2005 Total Segments QUALCOMM Pro Forma QSI (4) QUALCOMM (GAAP) Revenues $ 1,560 $ - $ 1,560 EBT 813 (27) 786 Net income (loss) 543 (5) 538 Diluted EPS $ 0.32 $ - $ 0.32 Diluted shares used 1,686 1,686 1,686
Pro Forma Reconciliations Continued First Quarter - Fiscal Year 2006 QUALCOMM Pro Estimated Share- Based Tax Total QUALCOMM Segments Forma Compensation (1) Adjustments (5) QSI (4) (GAAP) Revenues $ 1,741 $ - $ - $ - $ 1,741 EBT 906 (122) - (48) 736 Net income (loss) 667 (82) 56 (21) 620 Diluted EPS $ 0.39 $ (0.05) $ 0.03 $ (0.01) $ 0.36 Diluted shares used 1,702 1,702 1,702 1,702 1,702 Twelve Months - Fiscal Year 2006 Segments QUALCOMM Pro Forma Estimated Share- Based Compensation (1) Tax Items (2) (5) In-Process R&D (3) QSI Total QUALCOMM (GAAP) Revenues $ 7,526 $ - $ - $ - $ - $ 7,526 Change from prior year 33% - - - - 33% EBT $ 3,806 $ (495) $ - $ (22) $ (133) $ 3,156 Change from prior year 36% N/M - - N/M 12% Net income (loss) $ 2,804 $ (320) $ 40 $ (22) $ (32) $ 2,470 Change from prior year 42% N/M N/M N/M N/M 15% Diluted EPS $ 1.64 $ (0.19) $ 0.02 $ (0.01) $ (0.02) $ 1.44 Change from prior year 41% N/M N/M N/M N/M 14% Diluted shares used 1,711 1,711 1,711 1,711 1,711 1,711 Twelve Months - Fiscal Year 2005 Total QUALCOMM Pro Tax Adjustments QUALCOMM Segments Forma (6)(7) QSI (GAAP) Revenues $ 5,673 $ - $ - $ 5,673 EBT 2,799-10 2,809 Net income 1,970 71 102 2,143 Diluted EPS $ 1.16 $ 0.04 $ 0.06 $ 1.26 Diluted shares used 1,694 1,694 1,694 1,694
Footnotes to Pro Forma Reconciliations (1) During the first quarter of fiscal 2006, the Company adopted the fair value recognition provisions of FAS 123R using a modified prospective application. Under this method, prior periods are not revised for comparative purposes. Share-based compensation is included in operating expenses as part of employee-related costs but is not allocated to our segments as these estimated costs are not considered relevant by management in evaluating segment performance. (2) During the fourth quarter of fiscal 2006, the Company refined its estimate of R&D costs allocable to the Company s foreign operations to reflect our actual results and updated forecast of future benefits to the parties under an intercompany cost sharing agreement. Due to this adjustment, the effective tax rate in the fourth quarter of fiscal 2006 for total QUALCOMM (GAAP) includes $33 million of tax expense, or $0.02 per diluted share, related to fiscal 2004. In addition, the Company recorded a $17 million tax benefit, or $0.01 diluted earnings per share, related to the impact of prior year tax audits completed during the fourth quarter of fiscal 2006. For fiscal 2006 pro forma presentation, results have been adjusted to exclude these tax adjustments related to prior years. (3) During fiscal 2006, the Company recorded $22 million of expenses related to acquired in-process R&D associated with three acquisitions completed during the year. $21 million of this expense was recorded in the second quarter of fiscal 2006 and $1 million was recorded in the fourth quarter of fiscal 2006. For fiscal 2006 pro forma presentation, results have been adjusted to exclude these expenses as they are unrelated to the Company s ongoing core operating businesses and are also not allocated to our segments as these costs are not considered relevant by management in evaluating segment performance. (4) At fiscal year-end, the sum of the quarterly tax provisions for each column, including QSI, equals the annual tax provisions for each column computed in accordance with GAAP. In interim quarters, the tax provision for the QSI operating segment is computed by subtracting the tax provision for QUALCOMM pro forma, the tax adjustment column and the tax provision related to estimated share-based compensation from the tax provision for total QUALCOMM (GAAP). (5) During the first quarter of fiscal 2006, the Company recorded a $56 million tax benefit, or $0.03 diluted earnings per share, related to the expected impact of prior year tax audits completed during the quarter. For fiscal 2006 pro forma presentation, results have been adjusted to exclude this tax adjustment attributable to prior years. (6) During the second quarter of fiscal 2005, the Company decreased its estimate of R&D costs allocable to the Company s foreign operations under an intercompany cost sharing agreement. Due to this change in estimate, the effective tax rate in the second quarter for total QUALCOMM (GAAP) included a $55 million benefit, or $0.03 diluted earnings per share, related to fiscal 2004. For fiscal 2005 pro forma presentation, results have been adjusted to exclude this tax adjustment attributable to fiscal 2004. (7) During the third quarter of fiscal 2005, the Company made an election to compute its California tax on the basis of its U.S. operations only, which resulted in a $38 million tax benefit. Our effective tax rate in the third quarter of fiscal 2005 for total QUALCOMM (GAAP) includes a $16 million tax benefit, or $0.01 diluted earnings per share, for this California tax election related to fiscal 2004. For fiscal 2005 pro forma presentation, results have been adjusted to exclude the tax adjustment attributable to fiscal 2004. N/M Not Meaningful
Reconciliation of QUALCOMM Pro Forma to Total QUALCOMM (GAAP) Research and Development (R&D) Expenses ($ in millions) QUALCOMM Pro Forma Estimated Share- Based Compensation In-Process R&D Expense* QSI Total QUALCOMM (GAAP) Fiscal 2006 $ 1,236 $ 216 $ 22 $ 64 $ 1,538 Fiscal 2005 $ 962 $ - $ - $ 49 $ 1,011 Year-over-year change ($) 28% 52% *During fiscal 2006, the Company recorded $22 million of expenses related to acquired in-process R&D associated with three acquisitions completed during the year. $21 million of this expense was recorded in the second quarter of fiscal 2006 and $1 million was recorded in the fourth quarter of fiscal 2006. For fiscal 2006 pro forma presentation, results have been adjusted to exclude these expenses as they are unrelated to the Company s ongoing core operating businesses and are also not allocated to our segments as these costs are not considered relevant by management in evaluating segment performance.
Thank You.